We have an employee who no longer works for us in the typical sense. He retired and has agreed to stay on board for the next year during the transition. He is getting paid half his typical salary and works around 5 hours a month, totalling 60 hours a year.

My question is, "Is he still eligible to contribute to his 401k or not?"

Look at your 401K plan. It should state how many hours must be worked to be eligible to participate.

Anonymous is correct. The plan document or the SDP (Summary of Plan Document) will set-out the eligibility requirements for participation in the plan.

If however you have looked at the plan document and still can't find an answer, get on the telephone and talk to the trustee for the plan. He/She/They/It should be able to interpret it for you.

More than likely, no. "Benefits" are normally reserved to employees that work 30 hours or more per week. Board members are continually wanting to secure benefits - primarily medical coverage, but there is no way to include them, unless they actually work 30 hours per week.

Paragon may be absolutely correct IF you talking about offering medical, dental, eye care benefits and such. But as for participating in the company's 401(k) plan it might that the employee need only work far fewer hours per period to be eligible. In many cases that I am familiar with the number of hours is set per plan year and not per work week or pay period.

Generally, unless it is a 401(k) safeharbor plan, the company execs are extremely interested in generating as much participation in the plan as possible, especially from those that are not classified as HCE's (highly compensated employees).

The IRS plan testing requirements limit the amount of pre-tax contribution by HCE's if the ratio between them and non-HCE's is not at a certain level. That is why it is not unusual to see the participation eligibility requirements substantially less for 401(k) participantion than other benefits participation.

But again, as I initially suggested, review your plan document or SPD for the circumstances that apply in your specific situation. That way you will know for sure and us "arms-chair-quarterbacks" can ponder in other areas.

Good input - most plans have a 1,000 hour minimum requirement, but one needs to look at the actual plan to determine if that requirement is actually in the plan. It should be as part-time people working less than 1,000 hours normally need to be excluded through this element.